Policy uncertainty and loan loss provisions in the banking industry

• 成果类型: Article
• 署名作者: Ng, Jeffrey; Saffar, Walid; Zhang, Janus Jian
• 署名单位: Hong Kong Polytechnic University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-019-09530-y
• 发表日期: 2020
• 页码: 726-777
• 关键词: non-performing loans; earnings management; political uncertainty; INFORMATION; BUSINESS; determinants; channel; QUALITY; mergers; IMPACT

摘要

Policy uncertainty is an increasingly important issue in many economies. Extensive evidence indicates that higher policy uncertainty is associated with future negative macroeconomic and microeconomic conditions. In this paper, we examine how policy uncertainty affects banks' accruals for loan losses. Consistent with banks signaling more expected loan losses, we document that in times of higher policy uncertainty, banks make more loan loss provisions. This positive association is more pronounced for banks that were previously less prudent in their risk-taking and loan loss reserving, indicating that less prudent banks are harmed more by loan losses in difficult times. We also show that higher attention paid to a banks' financial reporting strengthens the role of loan loss provisions as a signal of expected loan losses. Overall, our paper offers insight into how, in the face of policy uncertainty, banks convey information about their loan portfolios to their stakeholders.